California sues Sutter Health, alleging price gouging

Apr 09, 2018

The state of California has filed an antitrust suit against Sutter Health, alleging anticompetitive behavior. Among other complaints, the suit alleges that the Sacramento-based health system imposes gag clauses on prices and in some cases charges “punitively high” amounts for out-of-network services.

Our Take: On Monday, UC Berkeley released a report that said costs for medical procedures were found to be 20 percent to 30 percent higher in Northern California than in Southern California, even after adjusting for the Bay Area’s higher wages and cost of living. That evidence is irrefutable.

The report also notes that from 2010 to 2016 (the time period the researchers studied), the pace of consolidation in California increased substantially.

“The vast majority of the counties in California warrant concern and scrutiny attending to the [Department of Justice/Federal Trade Commission] guidelines,” the researchers wrote. “Consumers are paying more for health care as a result of market consolidation.”

Fair enough. But the question here is, why single out Sutter?

California Attorney General Xavier Becerra said the state has studied Sutter’s practices over six years and it was time to hold the health system to account. Among a litany of complaints, court documents in the suit offer damning evidence of increased contracted prices at Summit Medical Center ranging from 29 percent to 72 percent following Alta Bates’ merger with Summit in 2000. Sutter Health owns Alta Bates.

We looked at the markets in which Sutter operates and calculated Sutter’s market share based on net patient revenue. The results:

San Francisco-Oakland: 30.8%, second to UC Health (31.7%)

Sacramento-Roseville: 34.0%, market leader (UC Health has 33.1%)

Modesto: 40.4%, second to Tenet (59.6%)

Santa Rosa: 28.5%, second to Provident St. Joseph (68.6%)

Vallejo-Fairfield: 20.4%, second to NorthBay Healthcare (79.6%)

Stockton-Lodi: 12.6%, second to Dignity Health (53.7%)

Santa Cruz-Watsonville: 11.0%, second to Dignity Health (68.0%)

Sacramento is the only metro area in which Sutter is the market leader. But, in that market, UC Health is less than a percentage point behind.

What’s more troubling—and probably what drives prices up—is that in all of the smaller markets where Sutter is second, there are only one or two other systems with which it competes. Sutter is being singled out because of its near dominance in so many California markets.

Health systems in markets with few competitors at the very least face less pressure to keep prices in check. Keep an eye out for how this suit plays out, as it could have an impact on how hospital and health system mergers are viewed by regulators in the future.